Oct 17 (Reuters) - Morgan Stanley posted a much higher-than-expected quarterly profit on Tuesday as record revenue from its wealth management business helped offset the blow from a slump in trading activity.

The results provided some evidence of what management has been promising for nearly nine years: the decision to buy Smith Barney at the height of the 2007-2009 financial crisis has given the smallest of the Wall Street banks a cushion to weather downturns the way some larger rivals do.

"Our third quarter results reflected the stability our wealth management, investment banking and investment management businesses bring when our Sales and Trading business faces a subdued environment," Gorman said in a statement.

Return on equity was 9.6 percent for the quarter, within Gorman's goal of 9 percent to 11 percent by the end of the year.

Adjusted earnings was 88 cents per share and topped estimates of 81 cents, according to Thomson Reuters I/B/E/S.

Revenue rose 3 percent to $9.20 billion from a year earlier versus the average estimate of $9.01 billion, according to Thomson Reuters I/B/E/S.

Investment banking revenue rose 12.7 percent to $1.38 billion.

Arch rival Goldman Sachs Group Inc reported a decline in quarterly profit as gains in investment banking were offset by a 26 percent drop in fixed-income trading revenue. (Reporting by Sweta Singh in Bengaluru and Olivia Oran in New York; Editing by Saumyadeb Chakrabarty)